Why the hiring rate matters more than unemployment for the housing market

After painful delays following last fall’s government shutdown, labor market data is finally back on a consistent pace. Last week we filled in hiring, quits and layoffs from the BLS JOLTS report for February, plus unemployment numbers for March and the latest initial claims for the first week of April. Taken together, they help illustrate how the labor market drives the housing market in 2026, where housing is solid and where the risks are. 

The most surprising aspect of the 2026 labor market is that unemployment has stayed consistently low. The unemployment rate(U3) actually declined in March to only 4.3%. The weekly initial claims data jumped a little higher in the first week of April, and remains very low from historical standards. So based on the early initial claims data, the unemployment rate for April doesn’t look like it’s heading dramatically.

This matters because when unemployment moves dramatically higher, it creates a negative cycle of distressed mortgage borrowers. When you lose your job and can’t pay your mortgage, you may be forced to sell your house or go into foreclosure. Inventory, especially distressed inventory, rises.

One important insight about unemployment and distressed inventory: it typically takes nine to 12 months after the spike in unemployment before distressed inventory shows up on the market. Since unemployment is low now, distress is low. If unemployment were to climb later in the year, this is 2027 inventory, or perhaps even 2028. We’ve been on the watch for rising unemployment and distressed inventory for nearly five years now. It’s still nowhere in the system. 

If your housing market hypothesis assumes that the market will crash this year because people are losing their jobs, the data really does not support that hypothesis now. Americans by and large are employed. That data just does not seem to be changing quickly. 

By the way — when I talk about the employment data, one criticism I frequently hear is that the unemployment rate is “wrong” because everyone is driving Ubers now. I call this the “Uber excuse.” Yet the data refutes that hypothesis too. The number of people working part-time for economic reasons is also pretty low, as is the data for involuntary part-time work. The “Uber excuse” is not supported in the data. 

The cracks in the labor market

Unemployment is low, but that doesn’t mean the labor market is on solid footing. The total number of jobs created in the country has been very weak since the new administration took over. Tariffs and immigration policy are heavy burdens for businesses. We can see this burden in the Non-farm Payrolls report. 

Fortunately, in March, a pleasantly big payroll gain came as a rebound of February’s giant loss. 2025 was an anemic year for job growth across the country. 

But even more so than job creation, the housing market’s big challenge with jobs is that companies are not hiring. As a result, even though few people are unemployed, it’s really hard to get a job. People who lost jobs are taking longer to find a new one. If you have a job, you don’t want to leave. Unemployment is low, layoffs are low, quits are low and hiring is low.

It’s this last one, hiring, that matters for the real estate industry. 

I’ve said the hiring rate is the key macroeconomic stat that I’m watching in 2026 to learn if the housing market can finally grow. Unfortunately, the hiring data appears to be actually getting worse. Hiring is slowing, not improving. The hiring rate for March came in at just 3.1%, which is as low as the worst of the COVID shut-down period and nearly as bad as the depths of the Great Financial Crisis. 

Why does hiring matter more than unemployment in 2026? Because relocation-for-work is one of the primary drivers of home-purchase activity. We move for new jobs, we move to growth cities to find new jobs, we move up when we get new jobs. 

And we’re not getting new jobs in 2026. Until the hiring rate turns around, we should expect restricted growth on home sales. 

Why is hiring so low and what would turn it around? Hiring is low because we hired so many people during the pandemic. It’s low because high interest rates make it difficult for companies to expand. The heavy tariff and immigration policies make it very difficult for many businesses to grow. Low hiring is probably also related to AI (though the hard data for this hypothesis is elusive, first-hand experience sure seems like it’s related). 

How hiring could improve

To get hiring moving again, we need some of these trends to change. Perhaps the Fed helps later in the year. The administration has shown some willingness to reverse some of the most draconian damaging policies. Maybe AI productivity gains shift from contraction to expansion momentum. Keep your eyes on the hiring rate to know whether any of those are in the cards.

One last bright spot for housing in the labor data is related to incomes and wage growth. For many years, home prices rose faster than incomes and affordability got worse. Over the last few years, incomes have been rising at a 3-4% annual pace where home prices are flat or even negative. Every day with this trend means affordability slowly improves, and that’s a good thing.

Here’s how it all wraps together. As long as hiring remains weak, home sales will remain restricted. But since unemployment is still pretty rare, the distressed cycle is unlikely, probably until at least 2028. Meanwhile affordability slowly improves with income increases. 

Keep your eyes on the hiring rate rather than unemployment this year.